How a Small Business Loan Can Benefit You

Are you running a small business that’s struggling to keep afloat during the slow months? Do your sales and profits plummet because of decreasing market demands? Don’t give up just yet. With a small business loan, you can maintain a positive cash flow to keep your business running even when the revenues are not trickling. You can also invest in marketing initiatives to boost brand awareness and attract new customers.

Small Business and Its Funding Needs

What is a Small Business?

The definitions of a small business vary among different regulators and laws. The Australian Bureau of Statistics (ABS) defines it as any for-profit organization that employs fewer than 20 people. These include:

• Businesses that employ between 5 and 19 employees
• Micro-businesses with 1 to 4 employees
• Non-employing businesses, which include sole traders and partnerships that do not have any employees except for the business owner

According to the Australian Tax Office, these businesses must have an annual turnover of less than $10 million excluding GST.

Meanwhile, the Australian Securities and Investments Commission (ASIC) defines a small business or a “small proprietary company” as those enterprises that fall into at least two of the following criteria:

• Have less than $50 million annual revenue
• Have not more than 100 employees at the end of the financial year
• Have a consolidated gross asset of less than $25 million at the end of the financial year

Fair Work Australia, on the other hand, considers a small business small is it has less than 15 employees.

Need for Adequate Funding

One of the biggest challenges that a small business face is the lack of funding or working capital. While business owners know how much money their business requires to keep operations running, they often fail to have a good estimate of how much revenue is needed to support the working capital and overhead expense needs.

Aside from supporting the day-to-day operations, a small business also need enough funds to support production, marketing, and delivery expenses. Money is also needed to develop and market a new product.

Features and Benefits of a Small Business Loan

A small business typically has a limited working capital and often needs to borrow money from lenders to support its funding needs. This can be difficult to obtain from banks and big-time lenders because these institutions often require businesses to have a big revenue stream or growth trajectory before granting them funds.

Fortunately, there are lenders that specialise in providing funds to small businesses through a small business loan.

Designed to support the monetary needs of small enterprises, a small business loan commonly has the following features:

Less Restrictive Requirements

Typically, small business financing has less restrictive requirements than standard business loans. These requirements include:

• A business plan is a document that describes your business goals and objectives, products and services, and strategies to achieve your goals (operations, sales, and marketing), and financial statement
• At least two years in most business; at least six months in some online lenders
• Latest business income tax return
• Latest business bank statements that illustrate a financial capacity to repay the desired loan amount within the agreed loan term

Some lenders may also require:

• A good business credit score of around 80 or higher
• A good personal credit score of around
• Collateral if its a secured loan
• Financial statements (balance sheet, cash flow statements, and income and loss statements)

What’s in it for you?

The less restrictive requirements help a small business secure the funds they need despite operating for only a short time or making a small annual revenue.

Faster Application Processing

A small business loan is usually offered by fintechs and online lenders, which utilise digital process automation to screen and review applications. This expedites the process and makes it convenient and time-saving for borrowers. Typically, a borrower can get a decision within 24 hours after submitting their loan application.

What’s in it for you?

Convenient and fast approval results in easy access to funds. This is particularly advantageous if you need the funds as soon as possible to pay for immediate business expenses, like buying business equipment on a limited-time sale or paying for labor and delivery of your products to clients.

Limited Loanable Amount

The amount you can borrow in a small business loan usually ranges from $5,000 to $500,000 depending on your business revenue. Generally, you can borrow up to one month of your business revenue. This is unlike banks and large credit unions where you can borrow as much as your cash-flow and security supports.

What’s in it for you?

The limited amount of loanable money is ideal if you’re borrowing money to cover an immediate business expense, like bridging a temporary gap in your cash flow or buying more supplies to develop more products for a client. Banks also set a minimum amount that you can borrow, usually around $100,000. If you do not need this substantial amount of money, your best option is getting a small business loan from fintechs or online lenders.

Shorter Loan Term

The average small business loan has a term length between six months and five years compared to business financing from the banks that can last up to 30 years.

What’s in it for you?

The short term results in bigger monthly repayments. However, it makes it faster for your debt to be repaid in full. You can also save money on interest.

If you’re borrowing money to purchase a vehicle for business, you can also avoid getting upside down on your loan. This means that you’re paying more than what your car is worth--a likely circumstance about three years after taking out your loan and your car’s value has significantly depreciated.

Flexible Repayment Options

Most small business financing lenders give borrowers the option to choose between a secured and unsecured loan types. A secured small business loan requires collateral, like a car or a business property, while an unsecured financing doesn’t ask for one. However, an unsecured loan carries a higher interest rate to compensate for the higher risk of loan default.

You can also choose to pay your loan’s interest rate via fixed or variable. If you choose a fixed interest rate, the interest rate of your small business loan stays the same over the entire term. If you go for a financing with a variable interest rate, on the other hand, the interest rate of your loan fluctuates according to the loan market conditions.

Additionally, you can also choose the frequency of repayment for your loan. While the most common repayment schedule is monthly, some lenders allow borrowers to pay fortnightly or weekly.

What’s in it for you?

Given all these flexibilities that come with a small business loan, you can structure a repayment plan that best fits your fits your business situation and cash flow.

Positive Lending Solutions helps small businesses across Australia secure the right financing for their various needs. Talk to one of our commercial loan experts at 1300 722 210 or fill out the Loan Pre-Approval form now!

See also:

What are the Benefits of Business Loans?

How to Create a Business Plan: A Template for Startups

What is a Small Business Cash Flow Loan?